In 1986, when I was in charge of physician services for a hospital in Connecticut, we were buying up physicians like crazy in an effort to control referrals and admissions to our hospital. We were, at that time, in competition with two other hospitals in the same community. This was prior to Stark and prior to the feeding frenzy we now see in the form of the Centers for Medicare & Medicaid Services (CMS) recovery audits. Ahhh, those were the days. In fact, the resource-based relative value scale (RBRVS) was not yet a reality, we were using the old E&M codes (anyone remember 90020?), and recovery audits were pretty much restricted to outright and obvious fraudulent activity.
Fast forward to today: What is different? Well, it seems hospitals are still in the mood to own physicians (especially PCPs) in order to control referrals and downstream revenue. And the exploration of ACOs has been a driving factor in the past few years. What’s different now, however, is that we are bound under a very complex and confusing set of rules and regulations that didn’t exist 20 or 30 years ago. And these have fueled a fever of audits and reviews aimed at taking back the moneys that were paid to healthcare providers in prior periods.
By some accounts, hospital-employed physician numbers have risen from some 5,000 at the turn of the century to nearly 50,000 today. The “why” behind hospitals purchasing physicians and physician groups runs the gamut, but the reasons are irrelevant to this article because, in the end, irrespective of the motivation to build, the risk is the same. Pretty much every hospital physician exec I have known or worked with invests quite a bit into the financial aspect of due diligence before they purchase a doc. How many patients a day does s/he see? What does the fee schedule look like? In what shape are the managed care contracts? What is the staffing ratio? How much does the doc make? How are expenses distributed? And much, much more. But what about risk? What kind of risk is the hospital purchasing, and just how does that liability affect the value of the purchase?
With audits of medical practices at a fever pitch and expected to get worse once the RACs are let out of the gate, hospitals need to look beyond just the financials and begin to get a handle on risk. Don’t get me wrong—some do. Think about it; the auditors are draconian and the methods are archaic. Since 2011, CMS has been using predictive analytics to identify high-risk claims and docs and most hospitals (and medical practices) are still using baseline probe audits to identify risk. Auditing 30 charts at random for any given physician yields about a 1 percent chance of identifying, at most, 20 percent of the risk opportunities. So, when you are done with this expensive and resource-consuming process, at best, you have missed 80 percent of the potential risks. That’s just crazy. What hospitals need to do is get engaged in the area of compliance analytics. This is a very new area and there aren’t many folks who really understand or practice in this specialty. I’ve been preaching it for years, and while predictive modeling is quite complex, most analyses can be done at a higher level without investing in the expert technology required for the deep dives.
At the very least, a hospital can conduct an initial assessment of the utilization variances between each of the docs and their peer group. This is most often done by comparing utilization, code by code, of the physician in question against the average utilization reported by their specialty using some control group. Most often, people compare against Medicare since this is a practice used by the auditing agencies. This does not measure risk, however, and that is important to note. CMS measures risk by using advanced predictive analytical algorithms, not just by looking at variance to Medicare. But it is better than nothing and, for most hospitals, will at least give them the ability to identify which codes for which docs fall into the “low-hanging fruit” category. Risk goes way beyond this and includes vector analyses (looking at the same data from different perspectives) and predictive modeling, which involves conducting variable contribution analyses. And while the latter is the better method, the former may at least meet the definition of “due diligence.”
In the end, shame on the hospital that doesn’t at least try to identify potential risk before purchasing the practice. Because you are, in effect, purchasing the risk along with the benefit. Sins committed by the docs in the past can come around to bite the new owner in the future. The government doesn’t care from whom they take back payments and sure enough, someone is going to pay. It’s like buying a used car without a warranty; once it leaves the lot, you own not only the vehicle, but all the problems that come along with ownership. Bottom line? Conduct a risk assessment on potential acquisitions, and remember: The greater the investment in compliance analytics, the lower the risk of surprises in the future. Surprises are great when it’s your birthday, not when it’s an audit.
And that’s the world according to Frank.
About the Author
Frank Cohen is the director of analytics and business intelligence for DoctorsManagement. He is a healthcare consultant who specializes in data mining, applied statistics, practice analytics, decision support, and process improvement. Mr. Cohen is also a member of the National Society of Certified Healthcare Business Consultants (NSCHBC.org).
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